Types of Companies in India

The companies registered under the Companies Act 1956 (Now Companies Act 2013) in India are of three types as follows:

  • Unlimited Company
  • Company Limited by Guarantee
  • Company Limited by Shares: These are of two types-

    1. Private company
    2. Public Company

Unlimited Company

The unlimited company is a company where there is no limit on the liability of its members. This means that if the company suffers a loss and the company’s property is not enough to pay off its debts, the private property of its members is used to meet the claims of the creditors. This means that there is a huge risk in such companies. Unlimited companies are not found in India; instead, their space is occupied by the proprietary kind of businesses.

Company Limited by Guarantee

In such a company, the liability of the members is limited to the extent of guarantee given by them in the event of winding up of the company.

Company Limited by Shares

In this kind of the company, the liability of the members is strictly limited to the extent of nominal value of shares held by each of them. If a member has already paid the full amount of the shares, he shall not be liable to pay any amount. If a member has partly paid the shares, he can be forced to pay the remaining amount during the existence of the company as well as during the winding up. Such companies are of two kinds, private and public.

Private Company

A private company is the one which has a minimum paid up share capital of Rs. 100000 or such higher capital as prescribed by the Companies Act. Its Article of association mentions that the company

  • Restricts the right to transfer its shares
  • Limits the number of its members from 2 to 50
  • Can not go for invitation from public to subscription to any of its shares
  • Can not accept deposits from persons other than its members, directors and relatives.

Public Company

A public company means a company which is not a private company and has minimum of 7 shareholders / subscribers.  It has to have a minimum paid-up share capital of Rs. 5 Lakh.

Distinction Private Company Public Company
Minimum Paid-up Capital 1 Lakh 5 Lakh
Minimum Number of Members 2 7
Maximum Number of Members 50 No restriction
Transerferability of shares Complete Restriction No Restriction
Issue of Prospectus Prohibited Free
Number of Director At least 2 At least 3
Commencement of Business Immediately after incorporation Only after commencement of business certificate is obtained
Statutory meeting No Obligation Obligatory
Quorum 2 members 5 members
Managerial remuneration No restriction Can not exceed more than 11% of Net Profits